News Corp. Internet Unit FIM Missed July, August Revs

News Corp’s (NWS) Internet unit, Fox Interactive Media (FIM), missed its internal revenue targets for July and August, several sources say. Unless FIM has an extraordinary September, therefore, it will miss Q1.

More broadly, we understand that people on FIM’s sales team feel that the $1 billion FY 08 goal for the division that Rupert Murdoch laid out in August won’t be attainable without some kind of financial engineering. We believe they think a more reasonable goal would be $800 million to $850 million, which would still be 45% to 54% increase over FIM’s $550 million total for FY 07.

Our understanding is that FIM’s shortfalls in July and August have come from both its display ad sales and lower-than-expected contributions from its Google deal–in which the search giant promised to pay at least $900 million over three years in exchange for the right to provide search and text link ads.  The reason for the July/August miss has implications beyond the company:

  1. If display ad revenue was weak at FIM this summer, it may have been weak elsewhere (such as Yahoo, AOL, etc.).  In fact, FIM executives argue that this is the case (see below)
  2. If the MySpace-Google deal is under-performing, Facebook fans should keep their own revenue expectations in check.

FIM executives declined to comment on the record. Privately, some FIM sources argue that the division will make up the July/August shortfall in September, that Web ads were off industry-wide in July and August, and that the unit is still on track to hit its Q1 as well as the $1 billion annual goal for the year. (News Corp. will announce its Q1 results Nov. 7). They also say the Google deal is performing better than expected and that there hasn’t been a shortfall there. Finally, they argue, FIM should get a lift as MySpace begins to roll out its targeted advertising platform, which gives advertisers access to MySpace users grouped by their personal interests.

The good news for News Corp: If FIM does come up short in its revenue projections, the shortfall will not  have a material effect on News Corp’s overall earnings: Last year the company posted operating income of $4.5 billion on sales of $28.7 billion.

The bad news is that FIM and MySpace are already under pressure to show sales growth to match their extraordinary usage growth. Now the ever-growing valuations tossed out for Facebook have focused even more attention on MySpace. The essential question for both properties: Can social networks, no matter how large, ever turn their popularity into real revenue?

Oct. 18 Update: Murdoch is now forecasting MySpace revenues of $750 million next year — down at least 6% from his August projection.

Is The MySpace-Google Deal Underperforming?

News Corp. Talks Up MySpace Ad Targeting